For Better or For Worse: Postnuptial Agreements and Intervention By the Court

Postnuptial agreements are an increasingly popular method for spouses to protect their wealth from future claims from a separated spouse as a result of relationship breakdown. A postnuptial agreement is a form of marriage contract that is negotiated and signed after the wedding with its purpose to exclude and protect assets or support obligations in the absence of, or in addition to, a prenuptial agreement. A postnuptial agreement is an alternative and safeguard against actual or alleged duress arising when a marriage contract is signed too close to an impending wedding date. A postnuptial agreement can be drafted to amend a prenuptial agreement that may no longer reflect the parties’ intentions for financial arrangements upon marriage breakdown. Many people believe these are boilerplate agreements that can be drafted cheaply and quickly, but these types of agreements require careful and specific drafting to reflect the parties’ intentions, negotiations between the parties with full financial disclosure that includes valuations of assets.

In Ontario a postnuptial agreement, like any other marriage contract, is subject to the statutory requirements of Canada’s Divorce Act and Ontario’s Family Law Act.

It’s important to know that any domestic agreement can be subject to intervention by the courts for any of a variety of reasons.

Intervention by the Court – Spousal Support

There is broad discretion in the Divorce Act and subsections 33(4) and 56(4) of the Family Law Act to allow courts to order spousal support despite the existence of a valid domestic agreement dealing with spousal support obligations. The principles directing a court as to when to use its discretion to override preexisting spousal support agreements require an examination of numerous factors as set out in: Miglin v. Miglin. That process makes it difficult to predict when a spousal support agreement will meet those requirements.

Preventing Enforcement that Would Lead to Unconscionable Results

The Ontario Court of Appeal determined that section 33(4) of the Family Law Act is not directed to unconscionable agreements, but to unconscionable results of a provision waiving support. An agreement that was fair and reasonable when it was signed, may, through circumstances that occur in the future, result in unconscionable outcomes at the time of a support application: Scheel v. Henkelman.

Preventing Enforcement of Unconscionable Agreements

In contrast to subsection 33(4) of the Family Law Act, subsection 56(4) allows a court the discretion to set aside unconscionable agreements and codifies the general law of contract applicable to unconscionable agreements: Scheel v. Henkelman.

Intervention by the Court – Failure to Make Financial Disclosure

Referring to section 56(4) of the Family Law Act, the Ontario Court of Appeal upheld the decision of a trial judge to set aside a marriage contract in circumstances where the husband failed to make full disclosure of his significant assets. The court found that his disclosure was incomplete and inadequate, and his failure to make full disclosure was a deliberate attempt to mislead his wife: LeVan v. LeVan.

Section 56(4) does not allow the court to amend a domestic agreement by providing that it does not apply to certain assets.

In Moses Estate v. Metzer, the Ontario Court of Appeal held that an entire contract or a portion can be set aside but not amended:

[14] Section 56(4) of the Family Law Act permits a court to “set aside a domestic contract or a provision in it…” This contemplates setting aside a contract or provision in its entirety. It does not permit the court to, in effect, amend a domestic contract by providing that it does not apply to certain assets

Courts have consistently held that the statutory duty of disclosure encompasses not only the existence of the significant assets, but also their extent and value. Insufficient disclosure, whether consensual or innocent, falls within the ambit of section 56(4).

Section 56(4)(a) has been found to include a requirement for spouses to disclose income. An income report prepared by an expert is often necessary for a self-employed spouse. Before rights are surrendered the party must understand what they are giving up. Such disclosure is particularly relevant when the marriage contract seeks to limit spousal support which might otherwise be payable: LeVan v. LeVan, see also Virc v. Blair upheld by the Ontario Court of Appeal in Virc v. Blair.

Moreover, a party to a marriage contract cannot enter into it knowing of the shortcomings in their disclosure and then rely on those shortcomings as a basis to have the contract set aside: Butty v. Butty. In other words, one party’s non-disclosure can never be used to assist their own position.

Intervention by the Court – Prohibited Contractual Provision

Marriage contracts can be set aside for other reasons as well. In Franklin v. ten Berge, the parties’ post-nuptial agreement was set aside because of a lack of financial disclosure and because the agreement conflicted with section 52(2) of the Family Law Act. Section 52(2) prohibits provisions in marriage contracts from limiting a married spouse’s right to equal possession of a matrimonial home. It is noteworthy that section 52(2) does not prohibit a marriage contract that limits any of the ownership rights to the matrimonial home, a date of marriage deduction for the matrimonial home, or other provision excluding the value of a matrimonial home from a calculation of net family property.

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